Chapter 12 Flashcards
(23 cards)
Assumptions of a perfectly competitive market
- Many buyers and sellers
- identical products
- Easy entry and exit
Price takers must do what?
accept the market price because their influence is insignificant
Perfectly competitive markets generally consist of a ___ number of ____ suppliers
large; small
When market price decreases ( as a result of demand decreasing) the price taking firm will receive a ___ price for all of its output
lower
In a perfectly competitive market, market demand curve is ____ sloping, and individual demand curve is ______
downward, horizontal
Total revenue is what?
The product price times the quantity sold
TR = P x q
Average revenue is what?
Total revenue divided by the number of units sold
TR / q
Marginal revenue is what?
the increase in total revenue resulting from a ONE UNIT increase in sales
MR = change in TR / change in q
Marginal revenue is ____ at all outputs and ___ to average revenue
constant, equal
P = __ = AR
MR
What is the profit maximizing level of output?
MR = MC . occurs at output q*
A firm can add to its total profits as long as:
MR > MC (all the way to q*)
If P > AVC, what should the firm do?
Continue to produce
If P
Shut down
Shutting down occurs in the ___ run, while exiting the market occurs in the ___ run
short; long
The short run supply curve is where?
the portion of the MC curve above the AVC curve
The short run market supply curve is what?
the summation of the individual firms’ supply curves in the market
When firms exit the market, what happens to price and market output?
Price increases and market output decreases
When is there no tendency for firms to enter/exit the market?
at zero economic profit
Where does equilibrium output occur?
the lowest point on the average total cost curve
an industry where input prices (and cost curves) do not change as industry output changes
ex paper clip factories
constant cost industry
an industry where input prices rise (and cost curves rise) as industry output rises
ex wheat industry
LR supply curve slopes up
increase cost industry
an industry where input prices (and cost curves) fall as industry output rises
ex mining regions getting a railroad
LR supply curve is downward sloping
decrease cost industry
